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**Question 41** Consider a five-year zero-coupon bond carrying an annual yield of 6.25% and a three-year zero-coupon bond with an annual yield of 5.15%. What is the two-year forward rate three years from now, assuming annual compounding? | Financial Risk Manager Part 1 Quiz - LeetQuiz

Explanation:

(1 + S_5)^5 = (1 + S_3)^3 \times (1 + {}_2F_3)^2

(1.0625)^5 = (1.0515)^3 \times (1 + {}_2F_3)^2

\frac{(1.0625)^5}{(1.0515)^3} = (1 + {}_2F_3)^2

1.35408 / 1.1626 = (1 + {}_2F_3)^2

(1.1647)^{0.5} = (1 + {}_2F_3)

7.92\% = {}_2F_3

(Book 4, Module 56.2, LO 56.c)

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Question 41

Consider a five-year zero-coupon bond carrying an annual yield of 6.25% and a three-year zero-coupon bond with an annual yield of 5.15%. What is the two-year forward rate three years from now, assuming annual compounding?

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Financial Risk Manager Part 1

Get started today

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Get started today

Question 41 Consider a five-year zero-coupon bond carrying an annual yield of 6.25% and a three-year zero-coupon bond with an annual yield of 5.15%. What is the two-year forward rate three years from now, assuming annual compounding?

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Question 41

Consider a five-year zero-coupon bond carrying an annual yield of 6.25% and a three-year zero-coupon bond with an annual yield of 5.15%. What is the two-year forward rate three years from now, assuming annual compounding?